J,,unrol 01’Trmp~ Grqqophv Vol. 0. No. 3, pp.

I X7-X11, I’198
Pergamon 0 199X Ekvicr Scu~r Ltd. All right\ reserved
Printed in Great Britain

PII: SO966-6923(98)00011-S

A container load center with a

developing hinterland:
A case study of Hong Kong
James Jixian Wang
Department of Geography and Geology, University of Hong Kong, Pokfulam Road, Hong Kong

The development of the Hong Kong container port in a regional context is examined in the
light of Hay&h’s five-stage load-center model. The port-hinterland relationship between
Hong Kong and China is unique as the hub and its hinterland belonged to two economies at
different development levels and of different institutional settings. The development gap in
containerization resulted in the inter-port competition stage being missed when Hong Kong
became a load center. This case deviated further from Hayuth’s model, as the challenge to the
center from peripheral ports is largely an outcome of the penetration of the hub operators
into other ports in China. 0 1998 Elsevier Science Ltd. All rights reserved
Keywords: container port system, port-hinterland relationship. load center, Hong Kong, China

Introduction: the development paths and stages and structural relationship among ports within a
of the regional container port system region. Among others, the study of container port
systems in the United States by Hayuth (1978) of
A regional seaport system, which often comprises a
container transport development in ASEAN countries
major hub port, several feeder ports or ‘spokes’ and
by Airriess (1989) and of inter-port competition in
their hinterland,’ has been one of the main research
East African countries by Hoyle and Charlier (1995)
themes in transport geography. Studies on this theme
are representative. The foci in this category of studies
can be roughly classified into two categories. The first
are the technological level of installations, the sophisti-
category questions how a port system develops and
cation of shipping, port and land transport operations,
interacts with its hinterland and land transport systems.
and their impacts on the formation of regional port
Typical examples are the case studies of Nigeria by
systems. The development status of the hinterland and
Taaffe er al (1963) Malaysia by Rimmer (1977) and
whether it differs from that of the port are not so
Ghana by Hilling (1977). In these studies, the major
important here, for an open system of market economy
ports in question were in developing countries with a
is implicitly assumed to cover the entire regional
colonial history and they eventually became the hubs
seaport system.
for their regions. Thus, the research focus is naturally
On the basis of this assumption, Hayuth has estab-
on the gateway functions of the port. The port cities
lished a theory of staged development of container
have been treated as the interface between the
port systems from a perspective of technological
developing hinterland and the more developed world
innovation and diffusion. This theory is summarized in
overseas.
Figure 1. He argues that there are three stages of
The second category of studies, to which the present
development prior to the emergence of a regional load
case study belongs, is concerned more with the evolu-
center, i.e. the pre-container stage, the container
tion of a port system per se, such as how ports compete
adoption stage, and a stage of concentration of
with each other for a hub position, and how new
hubbing activities after competition among ports. A
technologies, like containerization, change the spatial
load center is established as a result of economies of
‘For the definition and classification of port as a system, see scale in oceanic shipping, port operation and land
Robinson, 1976. transport. A strong centrifugal force will spread the

187
 I. Containerization imposed on a well-
Preconditions for established system of ports of all sires.
containeriaation
III. Vertical and lateral ditTosionof
Diffusion, containaization comes into a folly
Consolidation, and operational system, early starters take
Port Concentration advantage and form self-reinforcing
mechanism for growth; a new spatial
arrangement of the system emerges based on
center-subcenter relations.
V. The system structure reaches a greater
The Challenge of maturity. The intermodal system operates
the Periphery fairly smoothly; the load centers continue to
handle most of the container traffic; however,
the challenge to the dominant ports of some of
the snndler ports intensifies.
Source: Wang (1997).
Figure 1 Hayuth’s five-phase model for containerized port systems
A general equilibrium exists, as the port hinterland remains The conventional one: except for a The experimental stas of container
unchanged and containers are handled with other cargoes in few ports having direct service to shipping.
the traditional port system. overseas ports, most of the general
cargo trade handled by
conventional liners making
periodic calls at the larger ports.
The large ports reach further inland, as lines of penetration Increased concentration on the Fully cellular container ships and
beyond the traditional hinterland boundaries begin to ocean carrier’s structure and specialized gantry crane3 have
emerge, especially along the most important transport operation. The emphasis of vessel entered service
networks. operation is to improved the
turnaround time of ships in ports
and to cut total voyage time by
reducing the number of port calls.
The boundaries of hinterlands become blurred; the changing New dire&service lines to some
patterns ofpoints and lines for commodity packaging and peripheral ports emerge, while the
consolidating become more practically signScant than the ocean trade-route network is still
traditionally defined hinterlands. composed of a relatively few
consolidated long-distance
routes.
 The development qf Hong Kong as a container load center: J J Wang 189

influence on port activities through the region for quite Smaller ports persist in a system for reasons such as
a long period of time until limiting factors, mainly the local transport/port policies.
diseconomy of scale in port and related operation, Indeed, the development paths of container port
become severe. At this point, the stage of peripheral systems may vary with regional circumstances. Such
development sets in (Hayuth, 1978; 1987, pp. 74-82). variations can be seen as the outcomes of the maritime
Many of the characteristics defining the early stages transportation cycles in a global economy that match or
of this model have been evident in the case of port mismatch the regional context of economic growth and
development in the United States. The dynamics of the development (Rodriguc et al, 1997). A very interesting
world shipping business, however, has brought up new case to illustrate this is the world’s busiest container
questions not answered by Hayuth’s pioneering work. hub - Hong Kong, where the assumption that the
First, would it be possible for a new, growing port to hinterland and the hub port are a part of the same
replace the existing one? Second, if such a replacement economy does not hold. This former British colony
does not occur, can a region sustain two load centers? constructed its first container terminal and gained its
Third, what would be the role of re-organization of advantage in container hubbing for the region in the
shipping practices, such as the establishment of new 1970s. Since the People’s Republic of China (PRC)
inter-modal shipping routes or the formation of new opened herself to the world in 1979, Hong Kong has
alliances of shipping lines on the reformation of port served its hinterland for about two decades. What is
systems? unique here is that this capitalist port city-state and its
A study by Starr (1994) among others, attempted to communist hinterland have been in two economies,
answer the first two questions by analyzing the differing significantly in both the pace and level of
competition between Baltimore and Hampton Roads development and the institutional settings. A close
for the mid-Atlantic load center. While the means and examination of the evolution of this hub-hinterland
conditions of competition between two ports may be relationship is worth conducting for both theoretical
regionally specific, this analysis points out that it was and practical reasons. Theoretically, such a study will
the port authorities under the two state governments allow investigation of the formation process of a load
that initiated and backed up the competition between center and its regional container port system when
the two single ports for the load center position (Starr, impeded by a development gap. This may give insight
1994, pp. 221-222). This point is the key difference into the classical model of Hayuth (1978). Practically,
between this case and dual-port centers such as Seattle such an investigation will provide a better under-
and Tacoma, Oakland and San Francisco, and Los standing of container port development in the South
Angeles and Long Beach, California. Concerning the China-Hong Kong region and hence may help
impact of t-e-organization of shipping activities on the planners and operators seek possible solutions to the
development of load centers, Slack (1994) has provided container transport system.
a good example of how the US domestic containeriza- The following section presents the history of the
tion on both land and sea-borne transport has Hong Kong container port system in terms of develop-
reshaped the entire inter-modal shipping network and mental stages in the manner of the Hayuth model. The
hence the marine and inland hubs. special characteristics of this development path and
These cases illustrate behavior in regions where a their importance to container port studies are subse-
genera1 economic system is shared by all the ports in quently discussed.
competition and their hinterland within a country.
Presumably, the development stages suggested by
The case of Hong Kong
Hayuth are valid also when ports in different countries
compete for container load center status, such as From its earliest days, the port has been Hong Kong’s
Rotterdam and Antwerp in the Benelux seaport system chief reason to exist. The excellent natural conditions
of Europe (Charlier, 1996) because the hinterland for anchorage prompted the British to choose the terri-
they fight for is still located within the single general tory as their gateway to southern China. The intimate
economic system to which the ports belong. However, port-hinterland relationship, however, was seriously
the concentration of port activity to a single hub has weakened when the major economic links between
not always been expected. A recent study by Notte- China and the Western world were cut off for political
boom (1997) examines the validity of Hayuth’s model reasons during the period 194991978. For these 30
in a European context, and suggests that containeriza- years, mainland China implemented policies for a
tion leading to further port concentration is not centrally planned, self-sufficient economy and did not
confirmed. Notteboom argues that, although from the have much trade with or via Hong Kong.
viewpoint of shipping lines the load center concept has Hong Kong as a quasi-city-state within the capitalist
its merits, containerization does not necessarily result market world had no choice but to develop its own
in a concentration-deconcentration process in which export-oriented economy. The Territory was changed
the ports are first reduced to one or a few strong load from a simple cntrepot into an export-led manufac-
centers and then challenged from the periphery. turing base by the many entrepreneurs who had fled
I90 The development qf Hong Kong as a container load center: J J Wung

from Shanghai and other major Chinese cities with the largest port operator in Hong Kong. By 1980, MTL.
their capital. Like other Newly Industrialized Econo- alone handled 571400 TEU.’ South China at that time
mies in Asia, this little dragon had its industrial take- generated no container traffic, for it was running a
off during the 1960s and 1970s. Its success should be command and self-sufficient economy and was left a
attributed not only to the well-established financial, long way behind Hong Kong and other Newly
institutional and legislative settings, and the entrepre- Industrialized Economies in terms of economic growth
neurship and the hard work of the people, but also to and use of technology. Economically, China in the
its geographical advantages, including being at the 1970s treated Hong Kong as a window through which
center of the Asia Pacific region and having deep-water to watch the changes in the capitalist world. The
conditions (12.5 m) suitable for super-sized ocean- cargoes from China were mainly the basics for daily
going vessels. Containerization and inter-modalism consumption and for construction, none of which
were quickly recognized as an important tool to help needed to be containerized.
the Territory turn itself from a regional relay hub into
a world-class load center. In contrast to Hayuth’s Stage two: the port becomes a loed center by regaining its
~r~r~+l. the port of Hong Kong has undergone three hinterland
main stages of development since containerization
The isolation of China from the world of the market
started.
economy ended in 1978, when Deng Xiaoping initiated
an ‘open-door’ policy and introduced economic
Stuge one: a contuiner port for local need and relay reforms towards a ‘socialist market economy with
activities for regional shipping Chinese characteristics’. To try out such policies, a
Special Economic Zone (SEZ) was set up in Shenzhen,
After Japan and Singapore had already begun their
a city next to Hong Kong, in 1980. The Shenzhen SEZ
port containerization in the late 1960s the Hong Kong
quickly became the workshop of Hong Kong’s export-
Government finally accepted the suggestion of the
led processing industries because of its lower land and
shipping lines and port industry to have fully contain-
labor costs. This geographical shift of Hong Kong’s
erized terminals at a new location, Kwai Chung. Unlike
manufacturing sector northwards to China spread later
Singapore though, the government here from the very
to the entire Pearl River Delta (PRD) region, and the
beginning of the container port development insisted
two economics began to re-integrate. As a result, Hong
on its ‘laissez faire’ principle, and decided to let private
Kong started to draw on the potentially large amount
operators run port business with the government only
of containerized cargoes from the PRC, the PRD
providing land and some other infrastructure (Chu,
region in particular.
1989). The first phase of the development was started
This new relationship between Hong Kong and
in 1970 and completed in 1973. The first container
China can be illustrated by Figure 2, which indicates
ship, Tokyo Bay of Overseas Container Lines (OCL),
clearly that in the 1970s and the early 19x0s the two
called at Kwai Chung in September 1972, symbolizing
economies had quite different GDP growth trends.
the era of containerization coming into Hong Kong.
From about 1987, when Hong Kong’s manufacturing
During the 1970s the port was a key component of
sector substantially moved into the PRD, Hong Kong’s
Hong Kong’s export-led economy. At the time Hong
growth rate began to follow the GDP growth pattern of
Kong’s major trade partners were the USA and Japan.
the mainland. These facts are reflected in Hong Kong’s
China ranked third in terms of total trade values, but
re-export totals that exceeded its exports from this
its role was mainly as a supplier of daily necessities.
time. Furthermore, its container throughput increased
The port also served as a relay hub for the Pacific Asia
linearly with its re-export trade with China for the
region. In terms of total re-export trade with the Terri-
same period, as indicated in Figure 3.
tory, Asian countries took 67%, while North America
By handling the ever-increasing volume of containers
and Western Europe had 10% each. By economy,
from China, Hong Kong began to be seriously
Singapore, Indonesia, the USA, and Taiwan were the
challenged by Kao Hsiung and Singapore as a pivotal
major re-export partners, all ranking as more
center in the Pacific Asia region for regional trans-
important than China. The containerization backed up
shipment. As noted by Wong (1994), the loss of a large
this trade pattern and accelerated the growth of both
amount of relaying activities to Kao Hsiung was traded
the port industry and manufacturing sector (C&S,
off by a gain of containers being sent to and from
1981).
mainland China for international trade. Such an
The port developed rapidly. The second phase of
important role change for the port of Hong Kong after
Kwai Chung came with the opening of two terminals in
the ‘open-door’ policy in PRC was affected largely by
the mid-1970s. One was built in 1976 by Modern
the fact that Hong Kong was at the time the sole
Terminals Limited (MTL), which was among the
container hub with land connections to China. As a
earliest running the port, the other in 1974 by Hong
Kong International Terminals (HIT), which bought ‘TEU stands for 20 ft equivalent units. The cwmnon size of
terminal two from Oyama in 1976 and later became container is 40 ft long, or FEU, equivalent to two TEU.
 The development of Hong Kong as a container load center: J J Wang 191

Hong Kong and China: GDP Growth 1971-1995

Source: (1) Hong Kong Annual Digest of Statistics, various years, (2) China Statistics Yearbook, various years.

Figure 2 GDP relationship between Hong Kong and China

,* ’.
14.000

-A
:
.’ 12,000

,d
,’
,’
! 10,000 3

l-
,-
_’
8
8,000 0
600,000

1 6,000

i 4,000

Sources: Hong Kong External Trade, Hong Kong Shipping Statistics, Census and Statistics Dept. Hong Kong,various years

Figure 3 Exports, re-exports, and container throughput in Hong Kong, 1981-96

192 The development of Hong Kong as a container load center: J J Wang

large developing economy, China herself in the 1980s 18% to 46% during 1990-95, and 90% of this was
had made some progress in container handling and exported in containers through Hong Kong. The
established her own shipping line - COSCO, but she container trucks crossing the border between Hong
did not have any fully containerized terminal and any Kong and China increased substantially in number
direct call of major international shipping lines until from 3166 to 8859 per day from 1991 to 1995. In 1995,
1995. about one-third of the boxes handled in Hong Kong
The first half of the 1990s witnessed this role change were carried by land transport, and 90% were gener-
of Hong Kong from a relay hub to a load center ated within the PRD (Planning Department, 1996).
serving China. According to the United Nations (1990) This indicates the strong centrality of the port city, and
and Fleming and Hayuth (1994) relay or ‘dedicated’ explains, as shown in Figure 4, why, when the share of
hub ports differ from load centers in that the former containers to and from northern, central, and eastern
are major trans-shipment locations where locally gener- China via Hong Kong became smaller, the hub still
ated traffic represents a relatively small proportion reached its double-digit throughput growth in the early
(e.g. less than half), while the latter carry substantial 1990s.
traffic generated by its own centrality. In the case of To accommodate the growing demand from the new
Hong Kong, the trans-shipment share in 1995 was 40% hinterland economy and to benefit most from its
on average (Table I). If we consider China as Hong monopoly of container shipping with the mainland, the
Kong’s hinterland, the two being integrated into one primary concern for the port of Hong Kong was not to
economy, the share is as low as 33%. Within China, the compete with other ports in China, but to develop an
growing export-oriented economy has been concen- effective tool to maximize the port use while the port
trated on Guangdong province and the PRD region in expanded quickly. The Port Development Board
particular. This, to a large extent, is a result of Hong (PDB) adopted a ‘trigger point mechanism’ to ensure
Kong’s manufacturing sector moving into China. Hong that the government would not initiate the develop-
Kong and PRD have formed a ‘front store-backyard ment of new terminals unless and until the five-year
factory’ relationship: the port city is in charge of forecast of demand exceeded existing capacity by a
design, packaging and selling, while the region is sufficient margin. By this means it is possible to see
responsible for production. The share of Guangdong supply lags behind demand. A cushion of supply has
province in the total export value of China grew from been provided by the so-called mid-stream operation

Table 1 Containerized cargo handled in Hong Kong by major ship loading/discharging areas in the world, 1995 (thousand tonnes)

Sea-borne Sea-borne Total

inward Total outward Total local Total Share of
Sea-borne trans- sea-borne Sea-borne trans- sea-borne imports/ trans- trans-
imports shipment discharged exports shipment loaded exports shipment shipment

(B+EY
Area/country/port A B A+B D E D+E A+D B+E (A+D+B+E)

North America 5 317 2731 8 048 5 874 2 165 8 039 11 191 4 896 30%,
C. and S. America 499 290 789 858 419 1 277 1 357 709 34%
Asia 19 369 10 087 29 456 6 200 9 313 15513 25 569 19 400 43%
Japan 3 507 843 4 350 1 082 881 1 963 4 589 I 724 27%
Korea 2 678 349 3 027 244 332 576 2 922 681 19%
China 2 229 5 165 7 394 1 391 4 095 5 486 3 620 9 260 72%
Dalian 141 243 384 41 143 184 182 386 68%
Qinhuangdao 30 8 38 30 8 21%
Qingdao 266 566 832 42 246 288 308 812 73%
Shanghai 556 1301 1 857 263 955 1 218 819 2 256 73%
Shantou 69 40 109 324 648 972 393 688 64%
Tianjin 365 554 919 81 263 344 446 817 65%
Xiamen 108 784 892 213 668 881 321 1 452 82%
Taiwan 6 282 1886 8 168 1 160 807 1 967 7 442 2 693 27%
Indonesia 475 233 708 213 373 586 688 606 47%
Philippines 169 76 245 496 622 1 118 665 698 5 1%
Singapore 2 009 653 2 662 829 765 1 594 2 838 1418 33%
Thailand 842 709 1551 295 703 998 1 137 1412 55%
Malaysia 863 72 935 14s 283 428 1 008 355 26%
Australasia and Oceania 989 513 1 502 479 540 1019 1468 1 053 42%
Middle East 482 143 625 404 555 959 886 698 44%
Africa 294 72 366 620 519 1 139 914 591 39%
CIS and E. Europe 14 32 46 29 92 121 43 124 74%
Western Europe 4213 I 320 5 533 3534 3 332 6 866 7 747 4 652 38%

All 31 177 15 188 46 365 17998 16 935 34 933 49 175 32 123 40%
Trans-shipment share excluding China 33%

Source: Hong Kong Shipping Statistics (Census and Statistics Department, 1991-96)
 The development of Hong Kong as a container load center: J J Wang 193

Hong Kong Port: Containerized Cargoes from/to China

by Waterways (coastal and river), ‘000 tonnes 1992-l 995

0 North China

Source: Compiled from “Hong Kong Shipping Statistics, October - December 1995”, Census and Statistics
Dept., Hong Kong Government.

Figw -e 4 Share of containers from South, East and North China to Hong Kong

that involves the loading and unloading of cargo ships year 2006, the annual throughput will reach 25 million
mooring at buoys or anchorage in the harbor.” TEU (Port Development Board, 1996).
The ‘trigger point mechanism’ and the mid-stream
operations on the one hand have helped the port run Stage three: the penetration to ports in China
efficiently as the overhead investment in port infra-
structure has been minimized. On the other hand, Though a decade behind the boom of its export-
since the major mid-stream operators are owned by processing industries, Chinese container ports have
HIT (40% share of the market) and other large been mushrooming through the 1990s. As indicated in
corporations, the relationship between the terminals Figure 6, four newly constructed ports have been desig-
and mid-stream operators has become complicated: nated by the national government as China’s major
they are competing with each other while also comple- container hubs for international trade in the future.
mentary to each other. This has made the entire port They are Yantian in PRD, Maizhouwan at Taiwan
more productive in handling boxes from either land Strait near Fujian, Ningpo in Zhejiang close to
transport or the river barges. The hub thus managed a Shanghai, and Dayao, a port next to Dalian in
very rapid growth and became the world’s busiest Liaoning. Meanwhile, the existing ports such as
container port in the first half of the 199Os, as shown in Shanghai and Tianjin, both of which are close to a
Figure 5. The government even projected that by the large industrial base, have enlarged their container
handling capacities by upgrading facilities or building
new terminals. Middle-sized ports have also been
‘For a detailed discussion on the mid-stream operations, see Cheng pushed by provincial authorities to gain some share in
and Wong, 1997, pp. 27-39. the booming export business.
194 The development qf Hong Kong as a container load center: J J Wang

The monopoly of Hong Kong in China’s container- as Kao Hsiung and Pusan compounds this. Although
ized trade came to an end in January 1995 when the their threat is limited due to the lack of land connec-
Global Alliance started to call at Yantian directly with tions with China, they seem to be favored by firms
its Asia-Europe and Asia-America services. Since from Taiwan and South Korea for both regional and
then, Yantian has had regular direct calls also by the intercontinental shipping. On a smaller geographical
Grand Alliance, and the Maersk/Sealand partnership. scale, the threat is from Yantian, the only port within
Hyundai has started a weekly trans-Pacific call, and so South China that is equipped with a draft of 14 m at
has K-Line. More agreements have been signed or are quayside and 12 m at the approach channel, ready and
under negotiation for international direct calls at other capable of handling the largest container vessels
major ports in China, including Shanghai in the east carrying up to 6000 TEU.
and Dalian in the north. The first direct container In response to the above mentioned challenges, the
shipment between PRC and Taiwan was made in 1997, two major operators in Hong Kong container ports,
showing the effort of the Taiwanese to reduce HIT and MTL, have been involved in almost all major
re-exports via Hong Kong. Pusan in South Korea, the port containerization programs or new container port
world’s fourth busiest container port, has also been development projects in China. Hutchison Whampoa
very actively developing its trans-shipment business Ltd, as shown Figure 7, has invested since 1994 in five
with northern China, making use of its geography and ports within the PRD region and several in other part
well-established shipping networks. of China. Hutchison Whampoa owns a large share in
Hong Kong’s position as a load center for China is many of these joint ventures, such as 62% of YCIT in
therefore being challenged on two geographical scales. Shenzhen, and 43% of SCT in Shanghai. A similar
011 a large scale, Shanghai, Dalian and other new ports relationship has also been established between MTL
designated by the state as international container and their Chinese partners in other locations. By so
centers are establishing their direct trade connections doing, these enterprises are trying to rationalize their
through major international lines and more frequent container handling operations at a broader
services. The competition from intermediate ports such geographical scale, and are developing an inter-modal

14 00
i -D-Hong Kong
I- - * - -Singapore
+ Kaoshiung

12.00 L ~~ +Rotterdam
+ Pusan
+ Kobe
+ Hamburg
-Los Angeles
1000
-Yokohama
+ Long Beach

6.00

0 00 / / , -+-

1989 1990 1991 1992 1993 1994 1995 1996

Source: Containerisation International Yeakbook. various years.

Note: Kobe was displaced from the top 10 due to the earthquake in 1993

Figure 5 The top IO container ports in the early 1990s

 The development of Hong Kong as a container load center: J J Wang 195

approach to many areas beyond the port operation, container generating industries in the PRD region,
such as providing advanced full logistics chain services which has the best expressway network in the country.
from EDI document handling to door-to-door trucking. The hub position of Hong Kong has thus been
This ability of thinking inter-modally, however, is still reinforced, even though it is the only port in the world
not common in mainland China, and the cooperation of this scale which has no rail connection at all.
or collaboration for container transport among ports, The exceptional growth in the container transport
road networks, trucking, and railway systems has been activities in Hong Kong has been accommodated as
both limited and geographically unsystematic, as illus- much as possible by the port and within the Territory,
trated in Figure 6. In the case of the PRD region, for but some problems have cumulated. The most trouble-
example, there is a disparity between rail and road some issues have been the limited space for expansion,
development. The highway network is basically under the expensive land and labor costs, and the limited
provincial control, and its network has expanded very passing capacity at the border with China. The space
rapidly in the last 10 years due to a high demand for problem has two dimensions: more space is required
trucking and flexible policies in attracting investment within the port to increase the scale of terminal opera-
into the transportation infrastructure. The decision on tions, and more is required outside the port area for
upgrading the railway system for containerized cargo, backup, storage, and trucking facilities. The first
on the other hand, is still controlled by the Ministry of dimension involves no government effort and has been
Railways, which has invested most of its attention and handled well by private operators by the employment
capital in the construction of a new express rail system of new technologies and methods, such as stacking
in the country to compete with airlines in the domestic boxes six-high if necessary by state-of-the-art rubbcr-
passenger market for long-distance travel. Conse- tired gantry cranes. The costs of continually upgrading
quently, there has been a further concentration of equipment are said to be offset by a higher port
196 The development of Hong Kong as a container load center: .I J Wang

+
Container norls in other Ilutchison Port Holdinas
partsof the world (HW - 1

Zhuhai Nanhai Shantou Jiangmen Xiamen

International International International International International
Container Container Container Container Container
Terminals Terminals ‘l’erminals Terminals Terminals
(ZICT) (NICT) (SICT) (JICT)

Figure 7 The Regional Structure of Hong Kong-based Hutchison Port Holdings (HPH) and its penetration to China Ports, 1997.
Source: Compiled from the feature article: Hong Kong and the emerging southern China ports, Shippers Today JuliAug 1997, pp.
3- 12. *COSCO stands for China Ocean Shipping Company

productivity and efficiency. But as they are combined Another dimension of the space problem concerns
with a high land premium and increasing labor costs, logistics services. These include provision of storage
they have made Hong Kong the most expensive port in and backup areas outside the port for empty containers
the world in terms of Terminal Handling Charges and services such as the reparation of containers and
(THC), as shown in Table 2. trucks. Although the rate of empty boxes is reasonably
low, at 16-18% of the total, there are still more than
two million empties per year to be dealt with at Kwai
Table 2 Comparison of Terminal Handling Charges (THC) in April
1997 Chung. Since the port has no rail support, an estimated
30000 container trucks travel each day between the
lkans-Pacific port and locations in China. A large number of these
Eastbound Asia/Europe Intra-Asia
(ANERA) (FEFC) (IADA)
trucks stop at a middle point on the Hong Kong side
for temporary storage or a re-export process. By
HK$ TEU FEU TEU FEU TEU FEU Chinese customs regulations, a container itself is
Hong Kong 2065 2750 2065 2750 1500 2400
treated as a commodity. All containers have to be
Taiwan 1213 1566 1213 1566 1213 1566 carried in and out of China only through the same
Singapore 983 1459 875 1566 1213 1566 border control point because there are no networked
South Korea 844 1148 766 1035 609 896
Japan,’ Free Free Free Free 732 1097
computers linking with all the control points. As 90%
Malaysia 902 1345 581 871 902 1345 of truckers running cross-border business are from
Philippines 541 734 581 871 440 586 Hong Kong, the regulation means that most Hong
Indonesia 773 1198 502 618 386 579
Thailand 772 1158 772 1158
Kong drivers have to bring in and out of China the
N/A N/A
Germany N.A. N.A. 1357 1357 N.A. N.A. same container in the same day. Consequently, most
Netherlands N.A. N.A. 1227 1227 N.A. N.A. empty containers have to be stored somewhere in
United Kingdom N.A. N.A. X70 870 N.A. N.A.
Hong Kong between the port and the border with
I’ Freight between Japan-North America and Japan-Europe are China, which causes both traffic congestion and signifi-
under different conferences. There are no THCs charged on cant abuse of rural land in the New Territories (Cox
Japanese exports to North America and Europe. Similar charges
imposed by IADA are known as Empty Container Handling Charge
Consultant, 1994).
(ECHC). The high labor cost of using Hong Kong drivers is
ANERA - Asia North America Eastbound Rate Agreement
another disadvantage of Kwai Chung terminals in
FEFC ~ Far Eastern Freight Conference competition with Yantian. To reduce the total trans-
IADA - Intra-Asia Discussion Agreement port costs between the port and its hinterland, the river
TEU - Twenty-foot Equivalent Unit
FEU - Forty-foot Equivalent Unit
trade by barges is becoming more popular every year.
N/A ~ Not Available As each barge can carry some 50 boxes or 100 TEU
N.A. - Not Applicable from the Pearl River ports to Hong Kong, the lower
Source: Hong Kong Shippers Council (1997). unit transportation cost prevents Hong Kong terminals
 The development of Hong Kong as a container load center: J J Wang 197

8.
I I bffian& K&g
Charqcteristics of Characteristics of Port Exterbal Relations

Phase II stage I HK, Taiwan and Singapore developed The fast growth of local export-led processing Except for the existing markets, carriers
Initial container port 1970-1978 container ports and terminals as no such ports industry generated containerized cargoes, but used HK for Asia-Pacific & inter-
development built on Mainland bhina. HK became the there was no demand for boxes from China. continental relay activities.
only container port land-interfaced with
China.

Phee IV Stage II While China started to build its own
The load center 1979-1994 container pm% fir&y serving as feeders, HK
reached its maturity and turned into the
busiest hub in the \Uorldand the only load
center for Chii T@ediffusion of teohnology
and management in! containerized transport
from HK to China began.
China reopened itself to the market world and
as the hinterland came back with a booming
export-led economy, much of which was
concentrated in the PRD region neaf HK. 90%
of China’s containers were shipped via HK.
The river trade and cross-border land trucking
were intensified, reflecting the centrality of
HK umnected with the world by 200
plus inter-national shipping lines. China
had no major lines calling directly at any
port. &rriem’ routing strategy to call
fewer ports benefited HK.

Figure 8 Three stages of Hong Kong port development.

from losing their market further to Yantian or other Discussion on the developmental characteristics
mainland ports which have the potential for direct call of Hong Kong container ports
of ocean shipping. From 1992 to 1996, the average
The case of Hong Kong (HK) described above is
growth of river trade from the PRD region to Hong
summarized in Figure 8 in the light of Hayuth’s hve-
Kong was 41%.4 Since the Kwai Chung terminals were
phase model. It reveals two major ways in which Hong
not designed for a large amount of transshipment
Kong differs from the cases examined by the existing
between barges and ocean-going vessels, the Hong
literature. First, being the sole land-interfaced
Kong Government decided to build a river trade
‘non-China’ container port serving the country during
terminal (RTT) at Tuen Mun in the New Territories by
its transformation from a relay port to a load center,
1998.
Hong Kong did not experience a real stage of competi-
The rapid growth of river trade as a response to the
tion among ports and concentration as in Hayuth’s
road congestion and the cost-led strategy of Yantian
Phase Three. In other words, its position as the world
indicates that the penetration to mainland ports by
number one container port has to be attributed to both
Hong Kong port operators has resulted in a change of
the effective and successful development of the hub
competition battlefield from the terminal efficiency of
and the underdevelopment of other ports in China.
Hong Kong operators to the entire shipping chain that
Tony Clark, the former Secretary for Hong Kong Port
involves barging, trucking, consolidating, and all other
Development Board of the Hong Kong Government,
logistics. In the new battlefield, firms like Hutchison
believes that there are two key reasons why Chinese
Whampoa may lead the competition, as it owns and
ports could not have developed as competitors to Hong
operate terminals at both hub ports and feeder ports,
Kong: the lack of free access to international trade and
runs both ocean and river trade terminals, and even
the lack of natural deep-water conditions in existing
has a large share in the mid-stream operations. In
great ports (Clark, 1995). He does not comment on the
contrast, firms such as MTL, focusing on one link of
importance of the development gap that exists between
the chain, seem to be losing their competitive edge if
the underdeveloped Chinese ports and Hong Kong.
their advantage is still limited to the efficiency of
The cost of closing this gap suggests that it would be
terminal operations.
impossible for China, in the short run, to build any new
hub port in South China to compete with Hong Kong.
The second way that Hong Kong differs, as revealed
by Figure 8, is that although many characteristics of
‘Port Development Board Hong Kong: Total (Inward+Outward)
Container Throughput 1987-96, available at Web site http://www.in- Hayuth’s load center in Phase Five have been found in
fo.gov.hk/pdb/ the case of Hong Kong, and the challenge from the
 19X The dwelopment of Hong Kong us a container load center: J J Wang

peripheral ports is building up, the major cause of the ‘t-e-export’ procedures to send out their final products
challenge is the penetration of China by hub operators. or ship in raw materials via Hong Kong to other parts
As discussed earlier, while Hong Kong’s economy as of the world. This is mainly because, after some 15
well as its port reached maturity in the early 199Os, the years of economic reform in China, these firms in the
hub operators tried hard to offset its very high costs of PRD began to move their final packaging process to
land and labor. They did this through providing high China at the time of the movement of the manufac-
port efficiency and well-established calls of all major turing base in the early 1980s. This trend is particularly
lines at the same time as they stepped into China to noticeable for those firms in the electronics and toy
find alternative ways out by investing in the ports with industries that arc not subject to stringent export quota
the greatest potential, such as Yantian. rules (HKGCA, 1992, p. 83). The better arrangement
Yantian has the comparative advantages of its of FOB China also makes it more attractive than FOB
natural deep-water condition and connections to the Hong Kong, which compounds the negative effect on
Beijing-Kowloon railroad line, one of China’s trunk maintaining port-related activities in Hong Kong
railways. It also has the competitive advantages of (SCMP, 1996). More FOB China means a dispersion
having a Hong Kong HIT management and operation of hub function from Hong Kong to the region. It is
system at a low port cost location; lower land trans- commonly believed that shippers look for a better deal
portation costs due to the exclusion of Hong Kong and are followed by the shipping lines and port devel-
truckers; and customs procedures comparable with opers. But in the cast of South China, the challenge to
those used in Hong Kong and much more simplified the hub port arises, to a large extent, from the hub
than those found in any other Chinese port. All the operators themselves. It is they who, for their own
above advantages together mean that on average, a business interests, invest and cooperate with their
TEU sent from Yantian to a port in West Europe or counterparts in China, as they see Hong Kong starting
North America may cost US$300 less than one sent to lose its competitiveness.
from Hong Kong without losing safety, efficiency, and The aforementioned two ways in which Hong Kong
reliability. This is why Global Alliance has called at has been found to be distinctive in forming its load
Yantian since January 1995, bringing a real challenge center and relationship with other ports in the region
to Hong Kong. are related to each other. The penetration-led
As a result of this direct call at Yantian by Global challenge from the periphery ports is one of the results
Alliance, the question of whether new container tcrmi- of missing out the inter-port competition stage and the
nals should bc built within Hong Kong in the future unbalanced regional port development encountered in
has been raised. Being in a developed city with very the past. Hong Kong’s load center status being
expensive land and labor, Hong Kong may rapidly lost achieved in a very short period of time has been closely
its competitive edge once there is an alternative related to the undcrdevelopment of other ports in
nearby. For example, the cost of constructing a sound China (Figure 9).
barrier separating the residential area at Discovery Bay
and the proposed new site for Container Terminals 10
The future of the Hong Kong-Pearl River Delta
and 11 on Lantau Island could be as high as the entire
container transport system
cost of building terminals of the same capacity at
Yantian, China. But in such circumstances, the Hong It has been demonstrated through the case of Hong
Kong Government has kept promoting the Lantau Kong up to the present how the development charac-
Island package. The government argues that the port teristics of a container load center can deviate from
has been the backbone of Hong Kong, and that it has Hayuth’s model if the port’s hinterland exists in a
generated most of the job opportunities and revenues different economic system and at a different develop-
for the Territory. It claims that ‘port-related’ activities, ment level. The situation in this region keeps changing
which are given a very broad definition, involve some dramatically, since China has joined the global
21% of all jobs in the Territory (Hong Kong Govern- economy and Hong Kong has returned to Chinese
ment, 19%). sovcrcignty as a Special Administrative Region (SAR).
No matter whether major Hong Kong container The trend of integration has accelerated, and the
operators agree or disagree with the government’s development gap between the hub and its hinterland is
statement about the importance of the port business in diminishing. Nevertheless, if we focus on the process
Hong Kong, it is unlikely that HIT and MTL will bid rather than the resulting patterns or forms of a
for the future terminals in Hong Kong, as they have regional port system, the unique hub-hinterland
already speeded up their move to the nearby ports in relation from the past still has a strong influence.
China. Moreover, it is important to note that a lot of Indeed, as long as the Hong Kong SAR and China
port-related activities have begun to decline in Hong maintain the concept of ‘one country, two systems’, the
Kong since the early 1990s. Marc Hong Kong invested/ transport systems on both sides of the border will still
operated firms in South China, and in the PRD region operate quite independently. Significant differences
in particular, have chosen through-bills rather than the still exist in many areas of inter-modal containerized
 The development of Hong Kong as a con&w bud center: J J IVung

0 5 10 15 20 km

Superhighway -..-.-- Hong Kong /Shenzhen Boundary

- --___ Expressway / Highway Town
+H++ Railway ; Proposed Inland Depot
0 0 Combined Inspection Station /Port x Bridge
---:----- Special Economic Zone Boundary 0 Port Location
_..__,.l’....
...I....
. . .
-.-m- Boundary I .. .. .,.. Shenzhen Area

Figure 9 Map of Hong Kong in the Pearl River Delta transportation system
200 The development of Hong Kong us a container load center: J J Wang

transport business, such as the manner and quality of the construction of new infrastructure such as ports
management and logistics. and airports to facilitate the material flows. The third
Bearing in mind these facts about the special trajec- stage comes when multi-modal transportation and
tory for the load center in Hong Kong and its unique logistics are required by larger volumes of output for
relationship with its dramatically dynamic hinterland, multiple destinations.
one will see at least three aspects of this regional The future of this regional container port system is
container port system that arc affected by its past. largely dependent on the interplay between the various
First, Hong Kong and Yantian will act together as a levels of the Chinese government and the operators of
twin-port load center to serve the integrating South the Hong Kong container transport business. As the
China-Hong Kong region, with the latter being run by policy maker and regulator in the hinterland, the
operators from the former. This also matches the government in the mainland will continue to promote
possible future development of the region as a port development in the jurisdictions other than Hong
corridor, with Hong Kong being a core and a hub not Kong. The port players in Hong Kong, on the other
only for transportation, but also for finance and hand, will keep penetrating regionally and along the
telecommunications (Rimmer, 1996). Second, the entire logistics chain. One can therefore expect more
delineation of hinterlands for different hub ports in collaboration between the two in the foreseeable
China for intercontinental shipping will be apparent. future. More containers will be handled entirely within
Although it is sound to argue that hinterland delinea- China, whereas the growth in throughput of the Hong
tion for container shipping is becoming less meaningful Kong port will continue, but at a lower rate. To be
in the developed world (Hayuth, 1987), the case of aware of such a win-win possibility and to achieve it
China is different in that its land transport for inter- are important for the Pearl River Delta-Hong Kong
national container services has not been developed in a region to sustain itself as probably the largest export-
systematic and networked manner. As a result, each manufacturing base and generator of containerized
state-designated international container hub, including cargo in the world.
Hong Kong-Yantian, has relatively clear-cut catch-
ment areas to serve. This case will not be challenged in
Acknowledgements
the near future as China still has a long way to go to bc
inter-modally containerized across its vast inland Special thanks go to David K-Y Chu of the Chinese
provinces. University of Hong Kong, Chia Lin Tsian of the
Closely associated with this point is the likelihood National University of Singapore, Cindy Fan of the
that the diffusion of technology and management in University of California at Los Angeles, and two
the inter-modal logistics will play a very important role anonymous reviewers for their valuable comments on
in China and in the integrating Pear1 River Delta- the early versions of this article.
Hong Kong region in particular. Presently, the inter-
national inter-modal logistics services in China, such as
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